Oliver Hartwich looks at the lessons New Zealand policymakers can take from Europe's woes

Oliver Hartwich looks at the lessons New Zealand policymakers can take from Europe's woes

Over the next eight days we are publishing a chapter a day of an Oliver Hartwich essay "Why Europe Failed", an analysis of an ageing Europe, burdened by the size of its welfare state. He draws cautionary lessons for New Zealand's policy makers. You can read the full version here.

The first section is titled "Introduction".

By Oliver Hartwich*

There was a time, not long ago, when some commentators believed Europe was a model for the rest of the world.

US sociologist Jeremy Rifkin forecast The European Dream: How Europe’s Vision of the Future is Quietly Eclipsing the American Dream (2004); British foreign policy expert Mark Leonard explained Why Europe Will Run the 21st Century (2005); and US publicist T.R. Read boldly predicted The United States of Europe: The New Superpower and the End of American Supremacy (2004).

A decade later, it would be unthinkable for anyone to write such books.

The global financial crisis of 2007/08 may have started in the US with the collapse of its subprime housing market. However, the crisis quickly spread to Europe, where it had far worse consequences.

Whereas in the US, the economic crisis mainly affected individual companies such as the failed investment bank Lehman Brothers and insurance giant AIG, the economic crisis in Europe quickly became a crisis of sovereigns.

Greece has been teetering on the brink of bankruptcy since late 2009. Ireland, Spain, Portugal and Cyprus had to be bailed out by various mechanisms. France and Italy hardly look reassuring, either.

Some might argue that Europe’s recent troubles are just of a cyclical nature and that eventually the continent will recover.

However, such an optimistic assessment is not warranted.

What we are witnessing in Europe is much more fundamental. The current troubles of Europe are symptoms of the end of the European world order.

To put this into perspective, we only need to think back to the Great War whose centenary we are commemorating. World War I was the time when Europe last ruled the world politically and economically. The end of that war marked the beginning of the end of Europe’s global hegemony – along with a significant era of history.

No doubt history was made in Europe before the Great War. With the Age of Enlightenment, Europe led the way in scientific discoveries and ideas. Industrialisation catapulted Europe’s economies from medieval production methods to modernity within a few decades. The military power of European nations was unmatched. Many European nations, even small ones such as Belgium, established colonies all over the world. On the eve of World War I, Western Europe accounted for one-seventh of the global population but one-third of the global economy. Of the ten largest economies in the world in 1913, six were European.1

Europe’s influence on global ideas and institutions was greater still, not least due to its colonial outreach.

A century ago, European capitals dominated world politics. The streets of London, Paris and Berlin were once the corridors of world power. Indeed, the monumental buildings along Whitehall, the Élysée Palace and the Reichstag still exude a profound sense of greatness and historic significance.

In some ways, this European dominance of world affairs remains palpable to this day.

Among the most influential newspapers and broadcasters are the Financial Times, The Economist and the BBC, all headquartered in London. Europe accounts for three of the UN Security Council’s five permanent, veto-power holding members – Britain, France and Russia (not India, Brazil or Japan). Eurocentrism is even more pronounced in the G7, which includes Britain, Germany, France, Italy and the European Union (but not Mexico, Australia or China).

But these are the dying embers of a past world behemoth. Europe’s influence is undoubtedly in decline.

Whereas in 1980, the current 28 EU member states accounted for almost a third of the global economy, their share today is only 23%.2

Because of the continuing rise of Asian economies, this figure will further decline over the coming decades. It would be easy to excuse Europe’s relative decline as a result of the rise of other, previously poor countries. But that would be dishonest.

Europe’s decay is mostly due to the way Europe has been conducting itself.

If other countries were catching up with Europe while Europe itself was doing fine, that would be no reason for concern. Such convergence is the rightful triumph of a globalised economy. But Europe is not doing fine.

Europe’s downfall will also show in population numbers. The UN estimates that by 2100, only 5.9% of the world’s population will be European compared to the approximately 10% now. This is not just a relative reduction but also an absolute decline of 104 million Europeans from 743 million today to just 639 million in 2100.3

Contrast this with the only one statistic in which Europe leads the world by a mile: The EU’s 28 member states account for 54% of global spending on social welfare.4

It would be too simplistic to reduce Europe’s challenges to problems with its monetary union. Nor is Europe’s crisis limited to countries like Greece that produce negative headlines at regular intervals. Europe’s problems are more fundamental.

Its elitist structure of governance has locked its political institutions into paralysis. Its economic model of a mixed market economy is unable to keep up pace with more dynamic world regions. Its demographic changes will test the limits of its expanding welfare state. And all of this is happening against a background of increased security concerns on Europe’s borders with Africa, the Arab world, and Russia.

Europe is being challenged on many fronts at once, and even this is an understatement. It would be optimistic to say Europe is at the crossroads today. At least that would suggest it has a choice between reform and decline. But it increasingly looks as if there is no such choice and Europe’s inevitable future is one of decaying power, wealth and influence.

Europe then is not at the crossroads but is facing a dead-end. Or a cliff. A very steep cliff.

Europe’s leaders are struggling to come up with solutions to these challenges, preferring instead to instinctively cling to the EU’s mantra of “ever closer union” – as if that programmatic vision, spelt out in the EU Treaty, is sufficient in itself. Or as if “ever closer union” had been a pure success story.

This essay provides a brief historic account of Europe’s downfall and an analysis of Europe’s current economic and monetary crisis. More importantly, it tries to make sense of Europe’s downfall. If you will, it is a eulogy written for a continent that shaped world history for centuries but is desperately failing to shape its own future.

This essay does so from the perspective of a writer who is European himself but has chosen to observe European affairs from the distance of the South Pacific. As such, the account is coloured as much by personal affections and affiliations as by an emotional detachment that such geographical distance allows.

Finally, though there are elements of Europe’s decline that are unique to the continent, there are lessons that apply beyond Europe.

We in Australasia could do well to learn from the pitfalls of elitist decision-making and an unsustainable, expanding welfare state.

To be clear, Europe is still one of the most developed, most prosperous, and most liveable places on earth.

However, the cracks in Europe are clearly visible and will become increasingly pronounced over the coming decades.

It is a world region that made the past but will not make the future.

1. The Maddison-Project, http://www.ggdc.net/maddison/maddisonproject/home.htm, 2013 version.
2. IMF, World Economic Outlook (October 2013), database.
3. World Population Prospects: The 2012 Revision, Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat (June 2013), http://esa.un.org/wpp/ Excel-Data/EXCEL_FILES/1_Population/WPP2012_POP_F01_1_TOTAL_POPULATION_BOTH_SEXES.XLS.
4. “Does Europe account for half of the world’s welfare spending?” Full Fact (16 January 2014), https://fullfact.org/factchecks/europe_half_world_welfare_spending-29324.

Oliver Hartwich is the Executive Director of The New Zealand Initiative. Before joining the Initiative he was a Research Fellow at the Centre for Independent Studies in Sydney, the Chief Economist at Policy Exchange in London, and an advisor in the UK House of Lords. Oliver holds a Master’s degree in Economics and Business Administration and a Ph.D. in Law from Bochum University in Germany.

This is part I of a serialisation of his essay "Why Europe Failed". You can read the full version here. Part II tomorrow is titled: "Some Revisionist Thoughts on European Integration".

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Social-democracy killed Europe.
The corrupted EU killed Europe.
Getting too close to USA and their stupid foreign-affairs policies and too far from Russia is what's killing Europe.
Making an economic union before political,fiscal union is what killed Europe.
Implementing whatever is good for Germany and their supremacy interests over other nation's interest is what killed Europe.

The EU should have stayed an economic free trade zone with some standardizations thrown in.

The cardinal mistake has been to create an EU Commission which is modelled on a French centralized administration and which is constantly trying to exert power way beyond its legitimation and competencies.

The second mistake was to sign a set of treaties around the "Euro" which set it up to be a strong world currency like the DM had been before but which then have been systematically violated to deliver in reality a weak currency very similar to the French franc.

The third major mistake has been to follow the Franco-Italian tradition of systemic political corruption, lawlessness and nepotism which has propelled those two nations downwards for two centuries and is no infecting the rest of Europe.

In short: France has managed to transfer its failed model of government and economics onto the entire EU-continent and we are witnessing now the dire results.

That anything in the EU is is done to please Germany is an unsubstantiated myth. German taxes are the highest in the EU because Germany is the idiot that pays for the hegemonial fantasies of the "grand nation" (France) for the sake of an EU utopia that has long evaporated.

Hmm, I wonder if, in ten years time, will we be reading articles titled "The Great European Revival That No One Saw Coming"?

All it would take is for someone competent to replace Merkel. She is a populist politician like our Winston Peters. The Brits and Yanks blamed the banks for the last crisis (and they were partly to blame), whereas Merkel blamed the Greeks (and the Irish, and the Spanish, and the Italians, and the Portuguese) for a systemic failure? How stupid is that?

Well recognized. Merkel as a former East German Communist functionary is way too limited in her intelligence, negotiation skills or even basic willingness to engage in democratic dialogue or to follow the rules of the law to lead the EU to anywhere else but an abyss of mismanagement and incompetence.

But look how street.smart she is. Prior to her visit in NZ (which resulted in nothing but costs) she e.g. invited NZ journalists on a junket to Berlin. Surprisingly they sang her praises when she was here. How powerful she is, wow, and everyone needs to admire her. The reality: blew billions into the bottomless pit of Greece without solving asingle problem, is incapable to even uphold the integrity of German borders as a million asylum seeker gate crash their way in and is only keeping busy to manipulate public opinion of her abject failures.

Too many muslims and other peoples who do not want to assimilate with local culture. We should be picky with refugees as so many people want to move here, so I propose we bring in people who will assimilate with NZ and start their own enclaves as we see in Euro cities such as Malmo/Brafford etc. From Iraq I would bring in their christians not muslims.

I would not be in such a hurry to accept that Europe is 'failed'. It ain't perfect but it seems that half of the Middle East and Africa are fleeing there right now. For good reason.

At current rates EU is absorbing 1,000,000 per annum refugees with 800,000 being accepted by Germany this year. Coming from North Africa, Libya, Ethiopia, Nigeria, Syria, Iraq, Iran and Afghanistan. That will be a substantial increase in EU's welfare bill.

High probability of an upsurge in immigration into New Zealand from Germany starting soon

"High probability of an upsurge in immigration into New Zealand from Germany starting soon."

I agree. Why should a well-trained German pay the highest taxes in the EU to pay for millions of illegal migrants most of whom cannot even read and write and who will never productively contribute to society? Although the US and Australia will probably get a much bigger share of German "refugees" from Merkel's incompetence coz NZ just does not require much well qualified labour.

But I am taking any bet: O. Hartwich, Esq., will certainly NOT bring up the issue of Europe opening its gates to all problems of the world by giving up on border control as a reason for the current decline in Europe's fortunes. Too politically incorrect.

Oh. Hartwich is from the NZ initiative. That explains a lot.
Can't find much above that indicates to Hartwich that Europe is failed. Share of GDP? Reduced population share ?
To me those two things could indicate some wisdom. GDP does not neccessarily lead to increased benefit for inhabitants. Population? Places like Micronesia lead the population race. Not great places to live. Just about standing room only.

Hartwich and his fellow minions are always prepared to make bland statements either without the backup evidence or in such a manner bent toward their ideology. Today I was told that German universities provide free education (presumably in the past to Hartwich's benefit) and you do not even have to be a citizen. Here at Heidelberg they can be truly proud of their association with over fifty Nobel prize winners.

So the answer is to reduce social welfare to the African norm??

No Kiwichas - you make the African norm one of democracy and justice. Where your neighbour or the government doesn't burn your house down. Just like western Europe doesn't.

What could fail NZ? and any prevention can be done?

We in Australasia could do well to learn from the pitfalls of elitist decision-making and an unsustainable, expanding welfare state.

Oliver, what do you mean by "elitist" in reference to decision-making? Do you mean the make-up of the European Parliament, or perhaps a more direct reference to the European Commissioner or something/someone else?

Or do you mean more generally that all representative democracies involving decision-making by "elites" - and you are arguing for direct/participatory democratic decision-making?

Keen for clarification on what you mean by "elitist" as it's clearly the main point you are warning us against.

Obviously our esteemed Doctor, doesn't consider himself to be one of those elitist presuming to make important economic decisions without the public having given its assent. Funny that

See my comment below. Interesting thing about the report, the author suggests that an expanded welfare state was the means by which the European Parliament gained public support. But I'm not sure about that. Was it the EU that expanded welfare, or actual member states through their local representatives.


Got it - answered my own question by following the link to the full text. The author is arguing for more direct/participatory forms of democratic decision-making - suggesting the more 'distance' between elected representatives and the public - the worse the decision-making. Uses the Auckland Supercity/LG amalgamation as an example of where not to go.

The full article is a good read for those interested.

Just look at California for that outcome. Its nothing about real representation but more manipulation by pressure groups.

Great comment. Switzerland, which has a true democracy, is also in Europe and doing jolly well.

Its not really as everyone is running to the swiss franc making it hard for its exporters.

"elitist decision making" suggest s an [anti-]central govn stance, anti- "expanding welfare state" backs that up, ie he is a libertarian. The Q I have is why such a small % of extremists get given air time on main stream media such as Interest.co.nz.

Oh wait DC is a closet climate denier, starts to come together really doesnt it?

I suggest Oliver goes back in history of Europe and looks at the consequences of ignoring the poor, "let them eat cake" is a good start in Google.

Interesting co-read for those so inclined to follow OH's essay series: George Friedman's 'Flashpoints' http://www.amazon.com/Flashpoints-Emerging-Crisis-George-Friedman/dp/038...

Demographics is Destiny, and Europe's dg's are a'changin'........

The top 14 countries in exports per capita are European. Beat that.
Europe not failed at all according to this chart: